I'll give it a try (no flames PLEASE!), first, the knock sensor is a microphone that listens for noises whenever the ign is on, obviously it is constantly hearing noises so the signal is sent to the esm (filter that has been calibrated by GM to determine if the noise is actual detonation) once the filter determines that the noise is knock it says "PSSSSS hey boss we got some bad shit happenen here" and the ECM says "gotcha covered" and it starts to pull timing, the more detonation there is the more timing the ECM will retard.
Second, By tapping on the alt bracket or the block you are simulating detonation, and testing the esm and the ecm. When you tap you should see KR on Datamaster or scanner.
As for you not hearing knock that is actually good because it means that your computer is catching it before you can actually here it, by the time you here knock it's been knocking for awhile(BAD BAD!!).
As far as your knock problem, list all of your mods and I'm sure some of the guys will jump in from here.
BigAl...